Auditing ch12

Fact:

Examining and comparing purchase invoices and receiving reports dates several days before and after the inventory date helps cutoff assertion

an accurate cutoff of purchases is one of the most important factors in verifying the ____ and _____ of the year-end inventory

existence and completeness

the testing of _____ and _____ on the final inventory listing may disclose misstatements of physical inventories

extensions and footings

in reviewing the final inventory listings, the auditors test extensions and watch for two sources of substantial errors including

incorrect extension of count units by price units and misplaced decimal points

when addressing any significant risk related to inventories, auditors _____

may not rely solely on analytical procedures or prior year controls to address the risk and must determine if controls are implemented

the stores department:

notifies the accounting department of the amount received and placed in stock

Inventories include:

1) goods on hand ready for sale 2) goods in the process of production 3) goods to be consumed directly or indirectly in production (raw materials, supplies)

shipping document goes three places

1) retained by shipping department 2) sent to the billing department to help invoice 3) packaged with customer's order

the lower-of-cost -or-market rule involves comparing the recorded cost of inventory items with their ____ cost, subject to a ceiling and floor

replacement

a decreasing rate of inventory turnover suggests ______

the possibility of obsolete inventory

Useful analytical formulas for inventory: 2

gross profit margin and inventory turnover

overall production should be controlled by a ____ schedule that presents the gross production needs for a particular period

master production

overall production should be controlled with a ____ _____ ______ that presents the gross production needs for a particular product; based on forecasts of demand

master production schedule

sampling techniques, occasional test counts, and limited observations may sometimes be used to audit inventory when a client used a _____ inventory system

perpetual

the use of a ______ inventory system allows companies to control the high costs of holding excessive inventory while minimizing the risk of running out of stock

perpetual

auditors will test the pricing of inventories by ______

selecting items of large total value

when performing substantive procedures, the auditors will obtain a schedule of listings of inventories that will be reconciled to the _____ ______

general ledger

the effect on the FS of failing to include a year-end in-transit purchase as part of physical inventory is often not a serious one, provided the related _____ is not recorded until the following period

liability

notify accountants when you _____ and ______ goods

receive and ship

many companies have established ______ cost systems that help identify the causes of ineffectiveness and waste through a study of variances between actual and standard costs

standard

auditors record final serial number in inventory count to help with what assertion

cutoff

nearly all the functions involved in producing and disposing of the company's product are affected by IC for ______

inventories

when reviewing the client's completed physical inventory, auditors should test the clerical accuracy by reconciling the physical counts to the _____ _____-

inventory records

___ _____ ____ are prepared to document the labor or machine hours devoted to a particular production job

job time tickets

the document that authorizes the production of specific products is a production ______

order

normally audits will insist that inventory be taken at the balance sheet date, however, if the client has effective IC, including _____ ______, the auditors may be satisfied to observe inventory counts performed during the year

perpetual records

once the required resources are determined to be available, ___ ____ are prepared to authorize the production of specific products

production orders

when testing the pricing on raw materials or supplies, verify the price by reference to ______ ______

purchase invoices (for FG test through client's cost accounting records)

a purchase transaction begins with the issuance of a properly electronic or paper approved _____ _______ by the stores' department or another department needing the goods or services

purchase requisition

the controls that assure the fair valuation of inventory are found in ____ Cycles (2)

purchases and conversion

could obtain satisfaction with alternative auditing procedures for when auditors are engaged after year-end inventory count

rollback (need perpetual records)

the auditors also will record the ___ ____ of the final receiving and shipping documents issued before the taking of inventory so that the accuracy of the cutoff can be determined at a later date

serial number

products or containers of products are tagged with microchips that can be read remotely without line-of-sight

RFID

when goods are shipped using a common carrier, a shipping document a ____ of _____ is provided to the carrier

bill of lading

for 1st year auditor, use predecessor auditor's # to obtain beginning inventory balance.

...

the receiving department is responsible for

1) determination of quantities of goods received 2) detection of damaged goods 3) preparation of receiving report 4) prompt transmittal of goods received to the stores department

Fact:

Production orders include DM, DL, and OH